November 28, 2016

Stocks opened lower this morning (Dow -67 pts; SPX -.36%). Defensive sectors are leading the way (utilities +1.8%, telecoms +.5%). Financials, energy, consumer discretion and industrials are down in early trading. The VIX Index, which bottomed around 12.3 over the last few sessions, is up to 13. WTI crude oil is trading back up to $47.26/barrel and most other commodities are also higher. In fact, the Bloomberg Commodity Index is up about 9% year-to-date. Bonds are slightly higher in price as yields take a bit of a breather after a monster run. The 5- and 10-year Treasury yields are trading at 1.80% and 2.32%, respectively.

The oil market is struggling to deal with conflicting signals regarding OPEC’s proposed oil production cut. Another round of talks began in Vienna as oil ministers continue to negotiate. The Saudis have led an effort to establish OPEC’s first production cut in eight years, but from the beginning, Iran signaled it would not participate and Iraq is concerned about keeping its own market share. Anyway, the proposed cut would be negligible anyway. OPEC’s internal divisions will likely keep any deal from being significant or important. The Saudi oil minister is now saying the oil market can stabilize on its own in 2017 even without an OPEC production cut. 

The holiday shopping season got off to a strong start. According to First Data, over the Thanksgiving weekend, retail sales jumped 9.4% from 2015 levels! Building materials, clothing, electronics and sporting goods were top-selling categories with at least 10% y/y growth. Of course, we know that online is taking share from brick-and-mortar sales. Whereas online represented about 13% of total retail sales during the holiday season back in 2013, it is now expected to grab 25% this year. The National Retail Federation expects about one-third of all consumers to shop online today. And Comscore says it expects online retail sales to grow about 16-17% y/y during the entire holiday season. 

The Dallas Federal Reserve Manufacturing Outlook Survey surged this month to 10.2 from -1.5 in the prior month. That’s the highest level of business activity in more than two years and caps a massive rebound in the index from trough levels last winter. The survey’s six-month outlook jumped to 3.6 from 4.8 in the prior month. Results suggest manufacturing activity in Texas is rebounding strongly. 

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